Leasehold mis-selling – the next PPI?

The housing minister has attacked housebuilders' "abuse of the leasehold system" while another influential MP likened the scandal to the mis-selling of PPI at a heated industry debate.

February 6, 2017

Housebuilders came under fire from the housing minister and others at an industry conference last week over their “abuse of the leasehold system” in sales of new build homes. Another prominent MP speaking at the event likened the practice to the mis-selling of PPI.

There has been mounting criticism of developers of selling new build houses as leasehold rather than freehold. Historically, only flats were sold on this basis, because they share communal areas that need to be maintained. More recently, however, developers have been selling new build houses as leasehold and making additional profits by selling the freeholds on to investment companies.

As numerous case studies in the national press and on TV have revealed, many leaseholders have found the investment companies buying up these freeholds claim the right to increase ground rentexponentially over the years. In some cases ground rents can double in ten years.

Not only may home owners find themselves trapped in properties with escalating charges, but they are also being denied the right to buy their freeholdat a reasonable price as the investment companies that acquire these freeholds have been charging far more than the value originally quoted when the home was first sold.

Housebuilders drew furious comments from MPs when the issue was debated in the House of Commons on December 20 2016.

Unacceptable abuse of the leasehold system

Speaking at the annual conference of the Leasehold Advisory Service last Thursday in County Hall, London, housing minister Gavin Barwell said: “The Government is determined to stamp out this unfair, unjust unacceptable abuse of the leasehold system.”

He said he wants 2017 to be a “watershed year in improving fairness for all leaseholders” and that “reform could not come soon enough for those leaseholders experiencing onerous terms on their leases and or poor management”.

Referring to the estimated 9,000 new build houses sold as leasehold last year, he said: “Many of those seem to exist only to create an income stream from the ground rent or from altering a property or from selling the freehold.”

“These practices aren’t illegal, but …there is a gulf between the letter of the law and what our principles and morals tell us is actually right. Some of the cases… represent truly appalling behaviour,” he continued.

These tactics have not been limited to one or two rogue companies, but major developers, the minister pointed out. “They would do well to remember they are building homes for people to live in and not investment vehicles for financial institutions,” he said.

Is leasehold the next PPI scandal?

Sir Peter Bottomley, an MP and co-chair of the All-Party Parliamentary Group on leasehold and commonhold reform has been campaigning on this issue for some time and voiced further heavy criticism of housebuilders’ antics.

He referred to the case of a couple who had been quoted a price of under £4,000 to buy their freehold from the developer Bellway at the time they purchased their home, only to find that a year later, once the freehold had been sold onto an investment company, the price had gone up to £12,000.

Sir Peter said: “What kind of society are we where people who are new to property law should find that the asking price has more than doubled in a year for a home that they live in?”

Sir Peter went on to compare the unfolding scandal to that of the mis-selling of payment protection insurance, which has cost the banks many billions of pounds in compensation.

He said: “When we first started hearing about PPI, we thought ‘is there anything in this? It turns out of course there was a lot in it.

“The same thing applies I think in this leasehold field as well.”

Speaking later at a panel debate during the conference, HomeOwners Alliance chief executive Paula Higgins said that current legislation to protect leaseholders is too piecemeal and that the leasehold sector “is broken”.

She called on the Government to take bold action to reform the sector, including looking at abolishing leasehold altogether in favour of commonhold or another system.

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5 Comments

Bought a persimmon home,l hnew I was buying a leasehold property.there was no information about the leasehold until after I appointment a solicitor,and paid a deposit

Comment by Phil jenkins — October 21, 2019 @ 8:34 pm

I have just come to find out i was mis-sold a lease hold property after having paperwork come through from Land Registry, i was advised several times Conn ells who we purchased the house from i wouldn’t pay ground rent as the Land belonged to myself. They pressured me into using their solicitor who we never met.

Comment by Sheela Kumari — September 16, 2019 @ 11:56 am

People who are in power and trying to make a difference are finding it difficult, what chance does ordinary person have.
1. Why are the houses leasehold in the first place?
2. Why is there service charge for house?
3. Trying to get the builders to sort out problems with new build, like leaking bathroom , or water logged garden is a nightmare.
4. some rents doubling every 10 years others designed to increase in such a way that householder is effectively paying another mortgage for rest of their lives
5 They feel imprisoned as no one will buy their house, many will have their houses repossessed.
6 The law is unjust, you can not buy freehold before living in the house for two years. In this time house builders sell the freehold to investors. They asking 12000 to 40000 .
House builders when selling promise buyers they can buy freehold for 3000 or 4000., but do not give them first refusal.
When you do buy the freehold it still has lots of conditions imposed by the builders.
7. The houses do not get registered in the house buyers name sometimes up to a year . Why is this?
8. Families with children are at breaking point.
Why is this not illegal? who makes the law? There that’s the truth isn’t it.

Comment by narinder madahar — August 26, 2017 @ 12:52 pm

Im glad to hear that people who can make a real difference are taking this seriously. the lease on our 1 yr old home has just been sold off even though when we inquired about buying the freehold we were fobbed off and made to feel like we couldn’t buy it with the home and this would be something to sort out at a later date. We are young first time buyers with little knowledge of how these things work. What really frustrates me is that we weren’t offered the chance to buy before the freehold was sold to the investment company, and I still cant see what benefit that has for the builder – either they pay them the money or we do, but at least give people who are trying to start a home together the opportunity to do so. Not only this but we were not even informed of the sale which surely, as the home owners, is unjust. We may unfortunately be too late to benefit from any changes in the law but this immoral practice needs to be stamped out to prevent any more hardworking people feeling like their homes are at risk of escalating ground rents and therefore owning properties which will be much harder to sell.

Comment by Andrew Gibson — May 31, 2017 @ 10:36 am

Purchased house in1972. Leasehold because money was tight,cheaper .this was advised by developer. In 1989 was offered to purchase for about 900 pounds,as this was being processed.
Proceeding ceased and next we were informed that some company had purchased the lease
This was for our house. House owners do,nt seem to have any rights like flat owners do.
i want to sell house work 250000 pounds. Becuase ther,s only. 54 years remaining on lease
Its. Worth nothing
I,m thinking of seeing a solicitor about taking it to court. For misselling, in 1972. I,ve nothing to
Lose, i,m a 75 year old pensioner living on benefits there,s a 120000 mortgage which has expired
And if i do,nt sell. The house will be repossessed, excuse the expression ,but i,m in shit street